The business
Adobe sells Creative Cloud (Photoshop, Illustrator, Premiere, After Effects and more), Document Cloud (Acrobat, PDF, e-signatures) and Experience Cloud (marketing and analytics software for enterprises). Almost all revenue is subscription. Firefly, its family of generative models trained on licensed content, is built into the tools.
Revenue in FY2025 (year ending November) was $23.8B, up 10.5%.
Moat and switching costs
Professionals learn Adobe's tools in school and work in its file formats with every collaborator; a studio switching tools pays in retraining and broken workflows. PDF is a standard Adobe invented and still leads.
The threat is that generative AI lowers the skill needed to produce images and video, and new tools built around AI (and products like Canva and Figma for lighter work) serve the growing group of non-professionals. Adobe's answer is to put AI inside the professional tools and sell it by usage.
How the technology shows up in the numbers
Gross margin of 89% and free cash flow of $9.9B (42% of revenue) in FY2025; stock pay is moderate at $1.9B. Almost all of the cash goes to buybacks: $11.3B in FY2025, cutting the diluted share count by 5%.
At that pace, per-share value compounds even if revenue growth slows further.
Thesis
The market prices Adobe as a business AI will hollow out. If professional demand holds and AI features are monetised inside the subscriptions, a 40% free cash flow margin and 5% annual share reduction compound per-share value at double digits.
We would own it below our stated price.
Risks
- AI-native tools taking the creative work of non-professionals and, eventually, professionals.
- Pricing power: subscription price rises that customers resent.
- Experience Cloud losing ground in enterprise marketing software.
What would change our mind
- Creative Cloud subscription revenue growth falling to low single digits.
- Firefly usage not translating into revenue.
- Buybacks shrinking while growth also slows.
